Again, economic data headlined the week. Following the strong ISM manufacturing results of last week, the non-manufacturing index increased to 55.4 from 54.4 for October. According to a Bloomberg survey, estimates had the index dropping to 54.
3Q GDP increased by 2.8%, surpassing last quarter's growth of 2.5%. Expectations had GDP lower than last quarter partly because of the government shutdown. However, GDP growth was significantly influenced by inventory gains from businesses. Without inventory gains, 3Q GDP growth would have measured at 2.0%, compared to 2.1% from 2Q. Growth is likely to fall if businesses are unable to reduce their inventories.
The ECB decided to cut its primary interest rate from 0.5% to 0.25% amid concerns of deflation. The most recent Euro-zone inflation report showed a disappointing annualized rate of 0.7%, compared to the ECB target of 2%. The move further promotes ECB President Mario Draghi as a proactive defender of the Euro.
Non-farm payrolls blew past estimates as the US economy added 204,000 jobs compared to expectations of 120,000. Upward revisions were also made to the August and September numbers. Retail and hospitality sector gains were the largest contributors to the number. The unemployment rate rose from 7.2% to 7.3%, primarily attributed to the "temporary layoff" effects of the government shutdown. The participation rate fell further, settling at 62.8% from 63.2%. According to Zero Hedge, if the rate in the decline of the participation rate continues for the next four years, the pool of those not in the labor force will be higher than those in the labor force. Despite this, the week's stronger than expected economic data has again put "taper talk" back in the spotlight.
US equities rose for the week with the Dow closing at a new record of 15,761.78. The S&P 500 finished the week at 1770.61. Given the rally in equities following the stronger than expected economic data, the market seems to have strayed from its "good news is bad news" mentality that was the theme of stocks over the summer. Disney released fiscal 4Q earnings that topped estimates on strong results from their theme parks and consumer products. However, their network business disappointed. The company reported net income for the quarter of $1.39B vs. $1.24B from last year. Shares ended the week slightly down for the week, closing at $68.58. Twitter's highly anticipated IPO smashed expectations, as its share price increased 73% on its first day of trading to $44.90 from its IPO price of $26. The social media company closed the week at $41.65.
Treasury yields shot up on Friday following the release of the employment data on the return of tapering concerns. The 10yr Note yield ended the week at 2.746%, up 0.127% for the week. The 30yr Bond and 2yr Note finished the week with yields of 3.85% and 0.31% respectively.
The US dollar rose against the Yen and Euro, finishing the week at levels of ¥99.07 and $1.3369 respectively. Stronger than expected economic data drove the dollar's appreciation, while the ECB's rate cut pushed the Euro lower.
Crude finished the week flat at $94.60, for December delivery. The December contract of Gold fell to $1,284.50, following the stronger than expected US economic data. Corn, for December delivery, increased to $426.75, following reports that the year's crop will be less than expected.